Dow Edges Higher at Open as Cooler Inflation Data and Strong Hiring Ease Fears of an October Fed Rate Hike

NEW YORK — Wall Street opened higher on Wednesday after the Federal Reserve's preferred inflation gauge came in cooler than expected and private employers added more jobs than forecast, easing worries that the central bank will raise interest rates again next month.

The Dow Jones Industrial Average rose 64.96 points, or 0.13%, to 51,414.88 as of 9:37 a.m. Eastern time. In early trading, the S&P 500 gained 0.29%, the Nasdaq advanced 0.34% and the Russell 2000 slipped 0.35%.

The gains followed a losing session on Tuesday, when the Dow dropped 131 points, or 0.25%, to close at 51,351. Markets had pared steeper losses late in that session as rising Treasury yields weighed on stocks.

Inflation cools more than expected

The main driver of Wednesday's early move was the personal consumption expenditures price index, which the Fed watches closely when setting policy. Prices rose a seasonally adjusted 0.3% in August from July, putting the 12-month gain at 3.4%, according to the Commerce Department. Economists surveyed by Dow Jones had expected increases of 0.3% and 3.7%, respectively.

The core measure, which excludes volatile food and energy prices, was even softer. Core PCE rose 0.2% for the month, bringing the annual rate to 3%, compared with forecasts of 0.3% and 3.3%. Fed officials generally consider core PCE a better indicator of longer-term inflation trends.

Still, economists cautioned that inflation remains well above the Fed's 2% target. "You don't need your glasses on to tell the difference," said Bill Adams, chief U.S. economist at Fifth Third Commercial Bank, comparing 3% core inflation to the central bank's goal.

Adams said the report leaves the Fed's October decision still in play, with the outcome likely hinging on September consumer and producer price data, gasoline prices and geopolitical developments in the coming weeks. He also noted that while revisions lifted the saving rate, it remained at its lowest level since late 2022 in August.

Private hiring rebounds

A separate report showed the job market regaining momentum. Payroll processor ADP said private employers added 90,000 jobs in September, up from a downwardly revised 36,000 in August and above the Dow Jones consensus estimate of 68,000.

"It's a strong report," said Nela Richardson, ADP's chief economist, adding that job creation had rebounded after a three-month slowdown.

Gains were relatively broad. Service providers added 59,000 positions and goods producers contributed 31,000. Education and health services led the way with 55,000 new jobs, followed by leisure and hospitality, manufacturing and construction. Financial activities and professional and business services shed jobs.

Chris Zaccarelli, chief investment officer for Northlight Asset Management, said the morning's data sent mixed signals. He said the economy is still expanding at a good pace, but inflation is running too hot, with monthly figures elevated even as annual numbers improve. If inflation continues to ease, he said, the Fed might be able to skip a meeting.

Rate hike bets pulled back

The data reinforced a shift in expectations that began Tuesday, when New York Fed President John Williams said there was no urgency to raise rates in October. Traders had cut the odds of an October hike to roughly a coin flip from more than 70% a day earlier.

After Wednesday's inflation report, money markets priced in only about a 35% chance of a Fed hike next month, according to Bloomberg. The yield on the two-year Treasury note, which tracks rate expectations, fell five basis points to 4.83%.

Longer-term yields also eased from recent highs. The 10-year Treasury yield stood at 5.23%, down slightly on the day. On Tuesday, the 30-year yield crossed 5.6%, a level not seen since June 2002, while the 10-year climbed to a fresh 2007 high near 5.3%.

The pullback in yields offered some relief to a market that has struggled in September. As of Tuesday's close, the Dow was down roughly 3.5% for the month, while the S&P 500 was little changed and the Nasdaq Composite had gained 1.6%. Bloomberg reported that Wednesday's rebound put the S&P 500 on track to erase its September decline.

Oil climbs on Iran uncertainty

Energy markets remained a source of volatility. U.S. crude for November delivery traded around $91 a barrel, up more than 2%, according to Yahoo Finance data.

Oil rose after President Donald Trump denied reports that he would ease sanctions on Iran, clouding hopes for a peace deal. The war in Iran has entered its seventh month, keeping inflation concerns in play for investors.

Supply conditions have shown some improvement. Goldman Sachs estimates Gulf oil exports have recovered to 23.3 million barrels per day over the past week, in line with their 2025 average. Still, analysts at Japanese bank MUFG warned that product shortages and elevated freight costs are likely to keep the broader energy market tight.

Stocks on the move

Among individual stocks, Formula One Group rose 8.5% in premarket trading on strong commercial momentum and expanding sponsorships. Alliant Energy gained 7.6% on surging electricity demand tied to AI data centers, while Hewlett Packard Enterprise climbed 4.3% after announcing a multibillion-dollar AI infrastructure deal and raising its financial outlook.

On the downside, Concentrix sank 9.2% after missing third-quarter earnings and revenue forecasts. Moderna fell 6.9% after Citi downgraded the biotech company to sell. Northrop Grumman dropped 3.7% after losing out to Boeing on a major $20 billion U.S. Navy next-generation fighter development contract.

Investors are also awaiting quarterly results from Micron Technology after the closing bell, which will offer insight into demand for memory chips and the artificial intelligence market. Conagra Brands reported results before the opening bell.

Housing and currency pressures

Higher rates continued to weigh on the housing market. Mortgage rates rose for a sixth straight week to their highest level since November 2023, with the average 30-year fixed rate climbing to 7.30% from 7.12%, according to the Mortgage Bankers Association. Weekly mortgage demand fell 6%.

In currency markets, the dollar slipped on Wednesday but was still headed for its best month since June. The greenback is up nearly 2.5% against the euro in September and on track for a third straight quarterly gain.

"The US economy is running hot," said Brent Donnelly, president of foreign exchange trading at Spectra Markets, citing Europe's energy and political concerns as additional pressure on the euro.

Wednesday marks the final trading day of September and the third quarter. Investors will also watch the MNI Chicago purchasing managers' index for September later in the session, with economists expecting a reading of 51.2 after 47.1 in August.

Looking further ahead, Zaccarelli said a strong earnings season and getting past the midterm elections could help stocks break out of their recent trading range and reach new highs by year-end.